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Don't Race Out To Buy Firm Capital Property Trust (CVE:FCD.UN) Just Because It's Going Ex-Dividend

Simply Wall St

Readers hoping to buy Firm Capital Property Trust (CVE:FCD.UN) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. Investors can purchase shares before the 29th of August in order to be eligible for this dividend, which will be paid on the 16th of September.

Firm Capital Property Trust's next dividend payment will be CA$0.04 per share, and in the last 12 months, the company paid a total of CA$0.48 per share. Based on the last year's worth of payments, Firm Capital Property Trust has a trailing yield of 7.6% on the current stock price of CA$6.28. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. As a result, readers should always check whether Firm Capital Property Trust has been able to grow its dividends, or if the dividend might be cut.

View our latest analysis for Firm Capital Property Trust

Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. Its dividend payout ratio is 98% of profit, which means the company is paying out a majority of its earnings. The relatively limited profit reinvestment could slow the rate of future earnings growth We'd be concerned if earnings began to decline. While Firm Capital Property Trust seems to be paying out a very high percentage of its income, REITs have different dividend payment behaviour and so, while we don't think this is great, we also don't think it is unusual. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. It paid out more than half (69%) of its free cash flow in the past year, which is within an average range for most companies.

It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.

Click here to see how much of its profit Firm Capital Property Trust paid out over the last 12 months.

TSXV:FCD.UN Historical Dividend Yield, August 25th 2019

Have Earnings And Dividends Been Growing?

Stocks with flat earnings can still be attractive dividend payers, but it is important to be more conservative with your approach and demand a greater margin for safety when it comes to dividend sustainability. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. With that in mind, we're not enthused to see that Firm Capital Property Trust's earnings per share have remained effectively flat over the past five years. It's better than seeing them drop, certainly, but over the long term, all of the best dividend stocks are able to meaningfully grow their earnings per share.

Firm Capital Property Trust also issued more than 5% of its market cap in new stock during the past year, which we feel is likely to hurt its dividend prospects in the long run. It's hard to grow dividends per share when a company keeps creating new shares.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Firm Capital Property Trust has delivered an average of 5.4% per year annual increase in its dividend, based on the past 6 years of dividend payments.

The Bottom Line

Has Firm Capital Property Trust got what it takes to maintain its dividend payments? Firm Capital Property Trust has been unable to generate earnings growth, but at least its dividend looks sustainable, with its profit and cashflow payout ratios within reasonable limits. It's not an attractive combination from a dividend perspective, and we're inclined to pass on this one for the time being.

Curious about whether Firm Capital Property Trust has been able to consistently generate growth? Here's a chart of its historical revenue and earnings growth.

We wouldn't recommend just buying the first dividend stock you see, though. Here's a list of interesting dividend stocks with a greater than 2% yield and an upcoming dividend.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.